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OmniSource mum on May scrap trend

Keywords: Tags  scrap prices, OmniSource, Steel Dynamics, SDI, Russ Rinn, Mark Millett, ferrous scrap, nonferrous scrap Lisa Gordon

PITTSBURGH — OmniSource Corp.’s top executives are keeping the expected direction of May ferrous scrap prices close to the vest.

"I can make a case it is going to go down in May and I can make a case it is going to go up in May," Russ Rinn, president and chief operating officer of the Steel Dynamics Inc. recycling subsidiary, told investors during a conference call to discuss SDI’s first-quarter financial results.

OmniSource’s top brass also declined to comment on whether the Fort Wayne, Ind.-based company has been able to procure scrap at prices below April scrap market settlement levels.

The company’s guarded responses about the ferrous scrap market’s direction come at a time when SDI is keenly aware of the impact that market forecasting has on its order books, SDI president and chief executive officer Mark D. Millett said.

Whenever customers sense a downtick in scrap prices, the company’s steel order book dries up; and whenever customers sense an uptick, SDI is inundated with orders, as was the case in March, he said.

"The customer is so watchful of raw material input costs, and that is driving volatility," Millett said. "The procurement mentality will continue to drive (scrap) volatility."

Rinn did indicate that scrap inventory levels throughout the system are tight and even small fluctuations in run rates can impact the direction of the ferrous market.

For the first quarter ended March 31, SDI’s metals recycling segment was able to keep its operating income largely flat despite fewer shipments and lower revenue.

The segment posted operating income of $24.97 million for the quarter, down 0.2 percent from a little more than $25 million a year earlier, on sales that fell 21 percent to about $835 million from $1.06 billion in the same comparison.

Sequentially, the segment’s operating income fell 3.3 percent from $25.82 million "as increased volumes were more than offset by decreased ferrous and nonferrous margins," Millett said in a statement. "Due to ongoing slow U.S. growth and inclement weather, the availability of unprocessed scrap was limited, particularly in the Midwest and along the northeastern corridor, resulting in increased costs to purchase unprocessed material."

Ferrous shipments totaled 1.34 million tons, down 15.2 percent from 1.58 million tons in the year-ago period. Average ferrous scrap selling prices were $351 per ton in the quarter, down 15.8 percent from $417 per ton in the year-ago quarter. Nonferrous shipments totaled 279.6 million pounds, down 4.1 percent from 291.6 million pounds in the first quarter of 2012.

Including its ferrous resources division, however, the results were less stable. SDI’s combined metals recycling and ferrous resources unit—which includes OmniSource, a liquid pig iron production facility and the company’s Minnesota iron-producing operations—logged an operating loss of $4.3 million vs. a gain of nearly $10.4 million in the same period last year.

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